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Divorce always raises the difficult question of how to divide marital property. In most cases, the solution is very simple and involves surgically dividing the assets of both parties, but in the case of domestic dogs and aquariums, this is not possible. But if you think deciding who to adopt your dog is complicated, this is where cryptocurrencies come in.
Many households are still in the early stages of accumulating crypto assets, and have recently seen a sharp decline in digital assets such as: Bitcoin and ether It has damaged investor confidence, which had just hit a record high, and the path forward is unclear. However, for many married Americans, the current price of cryptocurrencies is not even seen as an issue. Assets can easily be taken away from unsuspecting spouses.
“In divorce cases, cryptocurrencies are causing the same headaches we’ve seen for years with offshore accounts, except now assets can be moved instantly and invisibly,” said Mark Grabowski, a professor of cyber law and digital ethics at Adelphi University and author of several books on cryptocurrencies. He added that the problem is that ownership is not determined by the name of the account, but by who holds the private key.
“If one spouse is in control of the wallet, they are essentially in control of the assets,” Grabowski said.
Lawyers now need to subpoena exchange transactions, track transactions on the blockchain, and determine whether the coins were purchased before or during the marriage.
“Without such transparency, and given the lack of reporting standards, it is easy for one spouse to hide or underreport their holdings. Courts have not yet caught up,” Grabowski said.
But in theory, a crypto divorce should work just like any other divorce. Renee Bauer, a divorce lawyer who has handled crypto splits, says the biggest question couples fight over is, on the surface, simple: “Who gets the wallet?”
“That question opens the door to complex issues that traditional property division would never have to deal with,” Bauer said.
The first challenge is to figure out what actually exists.
“Retirement accounts come with statements. Homes have addresses. Cryptocurrency could be sitting on an online exchange or in a hardware wallet that one of your spouses conveniently forgot to mention,” Bauer said.
Tracing it becomes both detective work and digital forensics. Once a digital asset is authenticated, its storage location is hashed.
“Some spouses may want to keep their digital wallets, especially if one person was in control of them during the marriage, while others may want to completely separate the financial aspects,” Bauer said.
Courts are still figuring out how best to deal with this.
“There’s also the issue of security. If one spouse hands over the private key, they are effectively surrendering complete control. If the spouse refuses, the court will have to decide how to enforce access,” Bauer said.
She recalled witnessing a lawyer who didn’t have much knowledge about cryptocurrencies try to convince his spouse of another asset’s value in Bitcoin, not realizing that it wasn’t that simple or fair.
“Many divorce lawyers are slow to respond and don’t bother asking for information. In my state of Connecticut, financial affidavits don’t specifically list virtual currencies, and for some people, that could mean missing out if they’re not looking for a valuable asset,” Bauer said.
Crypto Hunter, PI in the Digital Asset Divorce Era
One of the few companies that can help you find lost assets is BlockSquared Forensics. Ryan Settles, founder and CEO of the Texas-based company, says the need for his services has increased exponentially since he founded the company in 2023. Blocksquared is solely dedicated to the cryptographic aspects of family law and divorce.
Settles said that if a spouse (usually a woman) suspects that their partner is hiding cryptocurrencies, their lawyer may turn to BlockSquared. The company does everything from simple asset verification to detailed research, tracking cryptocurrencies across continents and into the murky world of wallets and exchanges. Settles’ company then presents the spouse with a “storyboard” that tracks and timestamps the movement of the cryptocurrency.
He said investigating whether one spouse owns cryptocurrencies is becoming increasingly common “especially among people involved in high-net-worth divorces and high-net-worth individuals.”
Ryan Settles is the founder and CEO of Blocksquared Forensics, a Texas-based company whose services range from simple asset verification to detailed investigations, often serving divorced women who were unaware of their spouse’s cryptocurrency holdings.
Ryan Settles
Taking virtual currency out of the divorce process will become increasingly common in the future. Settles noted that millennials own the most cryptocurrencies, and over the next six months, this age group will approach their divorce peak and increase their crypto holdings.
Another aspect that Settles focuses on is the spouse’s tax obligations to ensure they are addressed in a divorce.
“There are a significant number of tax issues that most people, including lawyers, are unfamiliar with,” Settles said, adding that the number of taxable events and reporting requirements for even a single transaction can be surprising to even the most experienced litigation professional.
“Most lawyers don’t understand it, they don’t understand the terminology. There’s so much trust when there’s no verification,” Settles said.
Many of his cases involve wives who are not only unaware that their husbands are dabbling in cryptocurrencies, but who end up paying huge taxes on capital gains when their assets are divided.
“Unlike a savings account, the value of cryptocurrencies can fluctuate significantly on a single day,” Bauer said. “Selling cryptocurrencies to distribute proceeds can result in capital gains; holding cryptocurrencies can create new arguments when their value changes,” Bauer added.
The Internal Revenue Service’s reporting requirements for cryptocurrencies, which are relatively lenient but are set to become even stricter starting with the 2025 tax year, have not helped.
“There are so many parts. There are so many lawyers nodding and smiling and pretending to understand,” Settles said.
But he said companies like his are usually brought in only when there is sufficient suspicion that a spouse is hiding important crypto assets. Settles said his services often cost more than a lawyer’s, with a $9,000 initiation fee and an investigation that can cost $50,000.
Difficult questions about splitting crypto assets
Bentley University professor Roman Beck, director of the Cryptographic Ledger Lab, says that because this is a relatively new field, it’s best to view courts not as dividing digital wallets, but rather as dividing the assets the wallets control.
“This law treats cryptocurrencies less as exotic than people think. The starting point is simple: for tax and most property law purposes, cryptocurrencies are treated as property, not money,” Beck said.
In the event of a divorce, Bitcoin, Ether, stablecoins, and NFTs acquired during the marriage typically become part of the marital estate, as do brokerage accounts and vacation homes, and how that property is divided varies by state.
“Courts don’t divide wallets; they divide values,” Beck said.
The real legal question is not “Who gets the wallet?” But “how do we allocate the economic value that the wallet represents, and who trusts the subsequent technical management?” he said.
This will require courts and lawyers to do one of three things: split up on-chain holdings, sell fiat currency and set it off against other assets.
“From a technical perspective, a wallet is simply a set of private keys, often distributed across hardware devices, mobile apps, and even seed phrases written on paper. Hardware wallets and private keys cannot be securely ‘shared’ after a divorce,” Beck said.
Another issue in crypto divorce is the volatility of the underlying assets, with currency price fluctuations making it more difficult for both the couple and the digital assets to agree on the timing of the split. In the past two months alone, Bitcoin has fallen 35% from highs of over $126,000 to low $80,000, with significant day-to-day fluctuations wiping out gains since the beginning of the year.
If the couple is thinking rationally rather than emotionally, the simplest solution might be to split the wallet on-chain, creating two wallets for each divorced partner so they can continue to share the cryptocurrency, or create a legal agreement that gives each party a share of the wallet.
“You don’t need to sell right away,” Beck said.
However, often one party is not used to holding a wallet and therefore is not comfortable with that solution.
Just as a divorced couple might not want to put their jointly owned home on the market at a bad time, the couple could also hand over their holdings of their crypto assets to a trusted third party, who would act as their agent and agree to sell the crypto assets once the market improves, i.e. once a certain agreed upon floor price is reached.
However, Beck added that from an economic and technical perspective, there are no barriers preventing divorcing couples from holding crypto assets using any of these methods, which allocate a legal share to each partner and delay liquidation until market conditions improve, but it requires the agreement of both parties and “most would like to see it happen.”
Blockchain ledger transparency and courts
Despite cryptocurrencies’ reputation as a haven of anonymity, there are also positives that other aspects of digital assets work well in divorce proceedings.
“Public blockchains like Bitcoin and Ethereum are transparent ledgers. All transactions are recorded forever. In other words, data analysis on the ledger turns the blockchain into a very patient financial witness,” Beck said. “If you know how to read the chain, you have a perfect audit trail. … The real frontier is not law, it’s forensics,” he added.
The adoption of cryptocurrencies by many Americans (recent surveys by Gallup and Pew Research estimate that 14% to 17% of U.S. adults own cryptocurrencies) is forcing family law to become more data-driven.
“The combination of a transparent ledger and powerful analytics gives lawyers and judges a better tool to reshape financial behavior than they would have traditionally had with cash. The policy question going forward is not whether it can be tracked, but how far courts will go to impose that level of scrutiny on everyday divorces,” Beck said.
Still, that doesn’t mean people won’t continue to try to hide their assets. Settles says he often sees movement in the ledger within 20 minutes.
“They’re going to start scrambling their assets, moving things around, hiding things, putting things in tumblers. That’s very interesting,” Settles said.
And traceable.
